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Advance notice of real-time electricity prices

  • Thomas Taylor
  • Peter Schwarz
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    Many utilities are offering real-time pricing (RTP) to their large industrial customers. Under RTP, hourly rates change with real-time supply and demand. As compared to fixed rates, RTP shifts price risk from the utility to the customer. With such a change, it is natural to ask if there is an optimal level of advance notice of prices. This paper contains a simulation of real-time rates for industrial customers with and without advance notice of prices. Advance notice is valuable to customers who can increase elasticity of substitution. This value must be weighed against the cost to the electric utility from an increase in demand forecast error. The simulation suggests that day-ahead advance notice increases welfare for reasonable magnitudes of customer elasticity and utility forecast error. Copyright International Atlantic Economic Society 2000

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    File URL: http://hdl.handle.net/10.1007/BF02298399
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    Article provided by International Atlantic Economic Society in its journal Atlantic Economic Journal.

    Volume (Year): 28 (2000)
    Issue (Month): 4 (December)
    Pages: 478-488

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    Handle: RePEc:kap:atlecj:v:28:y:2000:i:4:p:478-488
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    1. Herriges, Joseph A, et al, 1993. "The Response of Industrial Customers to Electric Rates Based upon Dynamic Marginal Costs," The Review of Economics and Statistics, MIT Press, vol. 75(3), pages 446-54, August.
    2. Gale, Ian L & Holmes, Thomas J, 1993. "Advance-Purchase Discounts and Monopoly Allocation of Capacity," American Economic Review, American Economic Association, vol. 83(1), pages 135-46, March.
    3. Mak, Juliet C. & Chapman, Bruce R., 1993. "A survey of current real-time pricing programs," The Electricity Journal, Elsevier, vol. 6(7), pages 76-77.
    4. Green, Richard J & Newbery, David M, 1992. "Competition in the British Electricity Spot Market," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 929-53, October.
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